'Our expansion will be slower'

Q&A: Vineet Kumar Kapila, President, Spencer's Retail

Spencer’s Retail has brought down its growth forecast from the 40 per cent projected earlier to 25 per cent. The company intends to focus on fashion and accessories. In an interview with Pradipta Mukherjee, Vineet Kumar Kapila, its recently appointed president, said the company will expand, but at a lesser pace for some time. Excerpts:

How has the slowdown affected Spencer’s?
We have closed down and relocated 56 unviable stores. Going forward, our expansion will be slower because we are more judicious about locations and viability now. Also, as we expand, we will customise and localise our products, keeping local tastes and preferences in mind. The focus is likely to be on large format stores, as we are hopeful that the size game will work in our favour, while we take measures to attract and retain our consumers. Our largest outlet is 75,000 sq ft, while the smallest is 1,500 sq ft.

Have you brought down your growth forecast?
Yes, from around 40 per cent growth, we have brought it down to 25 per cent, but even growing by 25 per cent during this downturn is an achievement, considering consumer discretionary spends are down by 20-25 per cent. We plan to add another 1.3 million sq ft by 2010 and the additional retail space should give us enough leverage to target a turnover of approximately Rs 1,500 crore in the next fiscal, irrespective of how the economy turns out to be. 

How are you trying to stay profitable in this downturn?
By managing inventories better, rationalising rentals, product assembly and boosting people productivity. We are investing in improving processes and corporate governance. We are leveraging the benefits of technology to ensure a shelf-centric supply chain process, so that inventories are managed better and stores do not suffer from stock-outs.

We are also negotiating with mall owners for rent, either in the form of reduction or revenue sharing. Rentals have dropped by around 30 – 40 per cent in tier-II and III cities. In tier-I and metropolitan cities, the correction is in the range of 15-20 per cent. A further correction and its impact is likely to come by in the next few months. Ideally, 3-4 per cent of sales should go towards paying rents, but that situation will take years to happen.

What are the company’s focus areas this year?
On private labels and on fashion and accessories, as they provide twice the margin as compared with food. Close to 10 per cent of our revenues come from private labels and fashion (individually) right now and we intend to take it to 25 per cent each, in the next 18 to 24 months. In garments and accessories, profit margins can be as high as 30 – 50 per cent, while for food and other FMCG products, the margin is around 12-15 per cent. We earn around 70 per cent from food. The rest is from non-food categories.

How do you plan to boost revenue from international tie-ups?
Currently, a very negligible part of our sales are from international brand tie-ups. Overall revenue contribution from international brands across categories is 5 per cent right now, which is expected to double in the next two years. We have four exclusive international alliances right now .

Any other tie-ups in the pipeline?
Yes, we are looking at tie-ups with local and national food chains who are not our direct competitors. For instance, we have Flury’s at our South City store in Kolkata, one of the largest stores (with 75,000 sq ft).

We will tie-up with more. This will not only help Spencer’s increase its revenues but also ensure more footfalls and push purchases.